Wednesday, 19 Oct 2011

British Inflation Suggests Stronger Pound

With yesterday's inflationary data out of Britain, it seems the pessimism in Europe isn't trickling across the English Channel, at least for now. Holiday spending and recent upticks in manufacturing should shore up the pound's advances this month.

Economic News

USD - Dollar Trading Sideways as Optimism Dominates Trading

The US dollar (USD) was seen trading mildly bullish Tuesday as investors weighed the impact of recent PPI and investment reports from the American economy. A sudden wave of risk appetite last week seemed to have pushed down on the USD, but pessimism emerging early this week held back some of those losses.

Data on inflation and investment yesterday also signaled a mild uptick in outlook from the previous month. The news has had some impact on the forex market, though it could magnify through longer-term analyses on US financial markets should increases in investment and spending increase over the coming months.

As for today, there will be a string of reports on housing and inflation following yesterday's similar readings on long-term investment and PPI. Liquidity will likely be higher in today's afternoon trading as these releases begin to get published. With consumer confidence, inflation, and retail sales in focus this week and next, the picture on future demand and growth levels is expected to become moderately clarified and this could weigh heavily on currency direction in the short- and mid-term.

GBP - GBP Gaining as Inflationary Data Supports Growth

The Great Britain pound (GBP) is expected to be seen trading with bullish results this week after reports on the country's inflation revealed a mild uptick this past month. Against the US dollar (USD) the pound has been trending upwards as the greenback's bearish moves help other currencies rise.

With yesterday's inflationary data out of Britain, it seems the pessimism in Europe isn't trickling across the English Channel, at least for now. Holiday spending and recent upticks in manufacturing should shore up the pound's advances this month. Moreover, though housing data seemed a bit pessimistic, consumer prices are indeed growing at a healthy rate in the UK.

Sentiment across the region may have turned slightly away from negativity, with many analysts and economists expecting moves towards safety by traders later this week, but the GBP could see a solid weathering of this financial storm so long as data remains bullish. Great Britain appears positioned for a relatively better quarter than its southerly neighbors. The pound could see some bullish movement this week as a result of this overall sentiment.

JPY - Japanese Yen Consolidating as Traders Weigh Global Sentiment

The Japanese yen (JPY) was seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending intervention by the Bank of Japan (BOJ). Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.

The latest moves of the yen are causing some concerns, however, as many speculators are anticipating another round of intervention by the BOJ. With industrial production data out this week, traders are waiting to see what the BOJ will do in the face of a downturn. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan's current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.

Oil - Crude Oil Trading Flat with Dollar in Decline

Crude Oil prices held steady Tuesday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

An expected spike in dollar values due to this week's risk sensitive environment has prevented many investors from taking positions on physical assets, creating a consolidation pattern on oil charts, but with the USD's gains not materializing in large enough numbers early this week, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing later in the trading week.

Technical News

EUR/USD

The pair has traded within a wide 8 cent range since the beginning of the month and could continue its rebound. Initial resistance for the EUR/USD is found at the weekly high which coincides with the 50-day moving average at 1.3910 and a retracement target at 1.4015. A move above here would signal more than just a correction in the downtrend. The previously broken trend line from May 2010 beckons as resistance at 1.4175. Should any downside price action be seen in the EUR/USD pair then the 20-day moving average could come into play at 1.3550.

GBP/USD

Cable has received a significant bounce after the downtrend failed to follow through below the 1.5300-1.5270 range. Initial resistance can be found from last week's high of 1.5850 with scope to the 1.6000-1.6100 range. Support is located at Tuesday's low of 1.5630 followed by the September low of 1.5325.

USD/JPY

The range trading for the USD/JPY continues with the pair held in check between the levels of 77.50 and 76.30. A move higher would likely find willing sellers at the September high of 77.85 while a break here could test the post intervention high of 80.25.

USD/CHF

The USD/CHF is encroaching on its rising trend line from the August and September lows which comes in at 0.8900. A bounce here could retest the October high of 0.9310 while a break of the trend may have scope to the 0.8550 support.

The Wild Card

Gold

Spot gold prices failed to move above the $1702.50 resistance level, limiting the upside moment. Forex traders should note that a break below $1627 could open the door open for a retest of the September low of $1530.

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